ABA Section of Business Law

Raabe is a partner at Robinson & Cole, LLP, in Hartford, Conn. Johnston is a
third-year law student at the University of Connecticut School of Law.

If youre into superstition and omens, Congress has a statute that you need
to avoid. In 1984, it codified the mark of the devil in the federal criminal code, 18
U.S.C. § 666.

Section 666 was designed to curb the evil of bribery related to federal funds. Prior to
its enactment, another federal bribery statute, 18 U.S.C. § 201, was viewed by many
courts to prohibit only the bribery of federal officials. In enacting § 666, Congress
sought to protect federally funded programs from going into the red through theft and
embezzlement by the direct bribery of federal officials. But it also made it a crime to
commit bribery in connection with private citizens who have a relation to federally funded
programs.

Although Congress intended § 666s scope to be significant in order to protect
federally funded programs, some observers of federal criminal law are now questioning
whether the horns of § 666 are too sharp to serve the federal interests at stake. This
article presents a hypothetical scenario to examine the breadth of § 666.

You are the CEO of a regional agricultural company. One of your product lines is
"human-friendly" herbicides, pesticides and organic fertilizers that you have
developed and patented. The company has been very successful but remains closely held. You
treat your 150 employees well and they are loyal and hard working. Competitive pressure
from multinational chemical and genetic engineering firms is intense, but you have a loyal
customer base that appreciates your companys personal touch in sales and technical
support. You think you run a pretty tight operation.

Youve hired one of the best regional law firms to usher your company through the
maze of state and federal environmental laws for your chemical operations and the company
has a comprehensive compliance policy to prevent and detect environmental violations.
Youve heard all of the horror stories about federal prosecutions and the last thing
you want is the feds at your facility. In fact, not that youre paranoid, but
youve avoided contracting with the federal government just because you dont
want to deal with the bureaucracy and red tape.

Your nephew Jimmy is your sales manager. He began doing sales for your company after
graduating from college and he remained in sales for six years, at which time he left the
company to expand his horizons and earn more money. Well, the horizon remained flat and
money never filled Jimmys pockets, so he went to graduate school, got a joint
MBA/horticulture degree and returned to the company. Jimmy always was energetic and
productive and on his return he had a joint graduate degree that your sister paid for, so
you offered him the position of sales manager. As sales manager, Jimmy handles some of the
larger accounts.

One of Jimmys accounts is a large landscaping company. Last spring, in response
to an RFP for all of the landscaping companys herbicide, pesticide and fertilizer
needs, Jimmy put his education to work and sold the landscaping company $65,000 of your
products, despite a $55,000 bid from one of your multinational competitors. Jimmy did not
tell you at the time, but during the bidding process with the landscaping company, he
offered to "donate" one of your companys old trucks, worth $3,000, to the
landscaping companys purchasing agent, who asked for the truck so he could use it in
his own snowplowing business that he runs on the side. After you found out about the
"gift," Jimmy assured you not to worry because he had not yet given the truck to
the purchasing agent and he said he would find some excuse not to give the truck to the
purchasing agent.

For many years the landscaping company has had the annual contract to landscape and
snowplow at all of the federal buildings and parks in your region. The landscaping
companys government contract is for $50,000 a year.

So now the questions:

Has Jimmy subjected himself and your company to criminal liability under a federal
bribery statute, 18 U.S.C. § 666? Keep in mind that it is widely held that business
entities are liable for the criminal acts of their directors, officers, employees and
agents provided that the individual was acting within the scope of his job duties and,
among other possibilities, the criminal act benefited the business entity or the act was
authorized by a supervisor. See United States v. Twentieth Century Fox Film Corp.,
882 F.2d 656, 661 (2d Cir. 1989), cert. denied, 493 U.S. 1021 (1990).

Despite your diligent compliance planning, has your company committed a federal crime
that will subject it to the mandates of the federal sentencing guidelines? How could the
circumstances in The Scenario constitute a federal crime  your company had nothing
to do with the federal government. Even if Jimmy screwed up, he sold to a private company
 not to the government. How could that be a violation of a federal bribery statute?
Whats more, why would it be a crime when Jimmy didnt actually make an improper
payment?

The answers to these questions may be cause for concern and forethought in corporate
America. Under the U.S. Supreme Courts recent interpretation of the federal bribery
provision in § 666, you can be pretty sure that federal prosecutors would be tempted to
come after Jimmy and the company under the bribery statute if they learned of The
Scenario, despite the lack of a direct connection between the corruption and the federal
government.

The Supreme Court, in the recent case of Salinas v. United States, 118 S. Ct.
469 (1997), concluded that the anti-bribery provision in § 666 uses "expansive,
unqualified language, both as to the bribes forbidden and the entities covered." Id.
at 473. While the statute has a number of provisions, one of the most commonly invoked
sections prohibits the corrupt offer, payment or receipt of anything valuable in
connection with a business transaction thats worth $5,000 or more with any business
organization or state or local government that receives more than $10,000 in federal funds
in any year.

In other words, if you or your employee offers a bribe or kickback to a person in a
company or state or local agency that gets more than $10,000 from the federal government
in any year, your company may be criminally liable for federal bribery.

There are reciprocal provisions in this federal bribery statute under which the bribe
offerer and the bribe receiver each can be punished. There are four prongs in § 666:

A corrupt demand, offer, payment or receipt of payment;

of anything of value;

with an intent to influence a transaction involving $5,000 or more;

involving a business organization or state or local government that receives more than
$10,000 within one year of the corrupt act.

The first element of § 666 is a corrupt act. Jimmys protestation not to worry
because he didnt actually give the purchasing agent the old pick-up truck is
unconvincing. In passing § 666, Congress sought to expand the existing federal bribery
prohibition, 18 U.S.C. § 201, which only applied to federal officials. The legislative
history of § 666 reveals that Congress sought to "protect the integrity of the vast
sums of money distributed through federal programs." 1984 U.S.C.C.A.N. 3182, 3511.

Essentially, it appears that Congress intended to expand the federal bribery law beyond
the act of bribing employees of the federal government to the act of bribing anyone
in an organization or agency who deals with federal funds. It is evident that in
protecting these interests, Congress also sought to prohibit both attempted and completed
bribery.

In the Salinas case, the court emphasized that the plain language of § 666
should control its interpretation. Salinas, 118 S. Ct. at 474. The plain language
of § 666, consistent with the stated intent to "protect the integrity" of
federal funds, imposes criminal liability on any person who actually pays or receives a
bribe or who "demands," "solicits," "agrees to accept,"
"offers" or "agrees to give" a bribe. 18 U.S.C. § 666(a)(1)(B) &
(a)(2). Accordingly, it is no defense that the bribe is never paid  if you or your
agent offers to give or take the forbidden fruit, this prong of § 666 is satisfied.

The second element of the statute is that something of value is offered as a bribe.
Again returning to the plain language of the statute, the Supreme Court concluded that the
bribe offered does not have to be of any particular nature to trigger criminal liability.
Stated plainly, the statute "prohibits accepting or agreeing to accept anything
of value." Salinas, 118 S. Ct. at 473 (citing § 666(a)(1)(B)). The
court summarized this element of the offense as the "transfer[] of personal property
or other valuable consideration." Id. In Salinas, the substance of the
bribe was "a pair of designer watches and a pickup truck." Id. at 472.

The scope of this prong cannot be underestimated, particularly in areas of business
that that employ "aggressive" marketing tactics. Many courts have stated that
the "anything of value" clause must be interpreted broadly in order to protect
the national interest against federal bribery. Indeed, in a ruling confirming the broad
scope of § 666, the Second Circuit Court of Appeals just pronounced that the Salinas
ruling "cast aside [any] construction of the statute that imposes limitations on the
anything of value element." United States v. Santopietro, 1999
U.S. App. LEXIS 804, *2 (2d Cir. 1999).

Courts also have concluded that the phrase "anything of value" includes
subjective value to the recipient. United States v. Piaquot, 963 F.2d 54, 54 (5th
Cir.), cert. denied, 506 U.S. 902 (1992). In that vein, courts have found that
"anything of value" includes, among other things, "amusement,"
"assistance in arranging a merger," provision of valuable information, a promise
to hire an employee and "conjugal visits" in prison, which actually were
involved in the Salinas case. See, for example, United States v. Marmolejo,
89 F.3d 1185, 1192 (5th Cir. 1996) (affirmed in Salinas).

Needless to say, if federal prosecutors combine the reasoning of the Salinas and
"subjective value" cases, the result could affect traditional ways of doing
business. In interpreting § 666 in such a manner, federal prosecutors intent on
prosecuting might conclude that "favors" such as the summer job offer to your
customers kid, an expensive set of irons for your client at a golf outing or an
expenses-paid trip to a conference for your client constitutes offering a thing of value.
In any event, there is little question in The Scenario that the offer to give the
purchasing agent a pickup truck, even if its beat up and worth only $3,000, would
constitute offering a thing of value in the eyes of the prosecutors.

The third prong of a § 666 violation is an intent to influence or be influenced in a
transaction "involving anything of value of $5,000 or more." 18 U.S.C. §
666(a)(1)(B) & (a)(2). Once again, the Supreme Court placed no limitation on this
language. The court termed this clause a "threshold," and cited the
statutes language that seemingly permits federal prosecutors to aggregate the value
a "series of transactions" in alleging the threshold, provided that the
prosecutors can tie the corrupt act to the "series." Id. In The Scenario,
in which the transaction between your company and landscaping firm was for $65,000, there
would be little doubt that federal prosecutors would argue that the $5,000
"threshold" has been met.

It is this prong that was the centerpiece of the Salinas case. Salinas was the
chief deputy at a county jail in Texas. He arranged for so-called "contact
visits" between an inmate and the inmates wife. Additionally, in what may have
proven for the inmate to be a worse lapse of judgment vis a vis his wife than the
bribery scheme once this caper came to light, Salinas also arranged at the same time for
"contact visits" between the same inmate and his girlfriend. In exchange for the
"contact visits," the inmate provided Salinas with two watches and a pickup
truck. The inmate was a federal prisoner, but he was in the county jail pursuant to a
contract between the county and the federal marshals service, through which contract
the federal government agreed to provide a grant to improve the facility and a per diem
for each federal prisoner. Salinas, 118 U.S. at 472.

Salinas argued that his conviction for federal bribery under § 666 could not stand
because there was no proof that the bribery affected federal funds. The Supreme Court,
referring to the language of § 666, flatly disagreed, stating, "The prohibition is
not confined to a business or transaction which affects federal funds." Id. at
473. The court reasoned that the "unambiguous" language of § 666 "does not
require the government to prove federal funds were involved in the bribery
transaction." Id. at 475.

Under The Scenario, it is likely that federal prosecutors would argue, based on Salinas,
that the lack of a direct connection, or even the lack of any connection at all, between
the landscaping companys federal contract and the bribe offer should not put its §
666 case in limbo. Because the "transaction" to which the bribe related, that
is, the sale of goods to the landscaping company, was well in excess of $5,000, the
prosecutors no doubt would argue that the threshold of § 666 was met.

The need for a connection of some sort between the bribe and the federal funds,
however, may be a slightly open issue even after Salinas. In Salinas, the
court stated that because there was an unquestionable nexus between the bribe and the
federal funds, it did not need to address the issue of whether such a nexus is required. Salinas,
118 S. Ct. at 474.

In contrast, in a recent ruling, the Second Circuit Court of Appeals touched on this
issue and noted that judicial interpretations requiring "some connection"
between the bribe and federal funds were "undisturbed by Salinas." Santopietro,
1999 LEXIS U.S. App. 804 at *14. In The Scenario, however, it is likely that prosecutors
would argue that even a "some connection" test was satisfied because the
companys herbicides, pesticides and fertilizers that were the object of the
bribery-infected sale could be used in the course of the landscaping companys
services to the federal government.

The final prong of the bribery provision of § 666 is that the federal funding to the
entity involved exceed $10,000 within the year surrounding the corrupt act. While this
provision was not in dispute in the Salinas case, if it were, the court no doubt
would have again referred to the language of § 666.

The statute offers some specifics, as well as a catch-all provision, in defining the
types of federal funding that will qualify under this prong of the statute. The plain
language defines "a grant, contract, subsidy, loan, guarantee [or] insurance" as
qualifying forms of federal funding, but the statute also provides that "other
form[s] of federal assistance" would qualify. 18 U.S.C. § 666(b). The statute
provides further that the "one-year" clause can be satisfied by any continuous
12-month period, whether before the act, after the act or a combination of both. 18 U.S.C.
§ 666(d)(5). Finally, in federalizing bribery in this manner, Congress broadly defined
the qualifying entity that receives the federal benefits, stating that it includes an
organization or any state, local or Indian tribal governmental body, including agencies,
boards, departments and the like. 18 U.S.C. § 666(a)(1) & (d)(1),(2),(3),(4).

One of the often-litigated provisions in this prong is the qualifying nature of the
federal funding. Many trial and appeals courts view this prong quite broadly, often
referring to the stated congressional policy of the statute of "protect[ing] the
integrity" of federal funds. For instance, in a case that we tried in the District of
Connecticut, the trial judge ruled that a Medicare intermediary, which the prosecutors
acknowledged acted as a mere pass-through for Medicare payments, qualified as an
"organization" for the purposes of § 666. In a similarly broad view, the Second
Circuit Court of Appeals has concluded under the language of the statute that a federal
loan, which would be paid back with interest, qualifies as federal benefits sufficient to
impose federal criminal liability in the event of corruption involving the borrower. United
States v. Rooney,
986 F.2d 31 (2d Cir. 1993).

On the other hand, the 9th Circuit Court of Appeals has concluded that a private
colleges receipt of federal student loan funds as tuition payment is not sufficient
to satisfy this prong of § 666. United States v. Wyncoop, 11 F.3d 119 (9th Cir.
1993).

Some courts also have concluded that federal payment for goods or services that an
organization provides are not within the ambit of § 666. For instance, in United
States v. Stewart
, 727 F. Supp. 1068 (N.D. Tex. 1989), the district court reasoned
that the theft provision of § 666 did not apply to individuals who stole parts from a
helicopter manufacturer that engaged in substantial government contracting. The court
concluded that "Congress did not intend the statute to apply in a situation of quid
pro quo
." Id. at 1072.

In light of the Salinas decision, it is interesting to debate, as long as you
and your company are not involved, whether the prior, more restrictive readings of the
scope of § 666 will be persuasive in the future. While there may be an open question in
The Scenario as to whether the landscaping company, which provided services for quid
pro quo
compensation, is a qualifying "organization," there is little
question but that the Supreme Court has placed in purgatory the view that federal bribery
under § 666 should have an identifiable nexus between the corrupt act and the federal
funds that Congress sought to protect in drafting the statute.

Because of the expansive interpretation that the Supreme Court has given § 666,
business organizations in the United States, now more than ever, should examine their
marketing practices for the potential for bribery. It is important to have a system in
place to detect problems, whether through sales force training, greater scrutiny of sales
force expense accounts, random interviews with customers purchasing departments
(which can be presented as "customer satisfaction interviews") or similar
procedures.

On the back end, it is also very important to have a system to deal with violations.
More and more, federal prosecutors look to corporate America to police itself when
violations occur, and government agencies and U.S. attorneys offices sometimes have
formal and informal policies to protect business entities from prosecution in the event of
self-reporting. To that end, it is important to know if such "amnesty" policies
exist and to have a compliance program that addresses the issues on which prosecutors
focus in deciding whether to charge an offense. Those issues include:

the existence of a comprehensive compliance program that provides for self-reporting;

punitive action against individual violators;

cooperation with investigators and

restitution.

See United States Attorneys Manual, Title 9, Ch. 27, Principles of Federal
Prosecution.

Because of the harsh results that can follow from a federal prosecution of a broad
statute such as § 666, careful planning and up-front treatment of suspected wrongdoing
are essential to determining whether self-reporting and cooperation are advised. Further,
in light of recent interpretations of § 666, businesses must avoid the temptation to
dismiss the potential of bribery in commercial transactions as a local or private matter
not likely subject to federal prosecution.